Hudson Global, Inc. (NASDAQ:HSON) Q4 2022 Earnings Call Transcript

Hudson Global, Inc. (NASDAQ:HSON) Q4 2022 Earnings Call Transcript March 30, 2023

Operator: Good morning, and welcome to the Hudson Global Conference Call for the Fourth Quarter of 2022. Our call today will be led by Chief Executive Officer, Jeff Eberwein and Chief Financial Officer, Matt Diamond. Please be advised that the statements made during the presentation include forward-looking statements under applicable securities laws. Such forward-looking statements involve certain risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These risks are discussed in our Form 8-K filed today and in other filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K. The company disclaims any obligation to update any forward-looking statements.

During the course of this conference call, references will be made to non-GAAP terms such as constant currency, adjusted EBITDA and adjusted earnings per diluted share. Reconciliations for these measures are included in our earnings release and quarterly slides, both posted on our website, www.hudsonrpo.com. I encourage you to access our earnings materials at this time as they will serve as a helpful reference guide during our call. I will now turn the call over to Jeff Eberwein.

Jeff Eberwein: Thank you, operator, and welcome everyone. We thank you for your interest in Hudson Global and for joining us today. I’ll start by reviewing the fourth quarter 2022 highlights and Matt Diamond, our CFO, will provide some additional details on our financial results. I’ll then give an update on current business conditions. In the fourth quarter of 2022 we reported revenue of $44 million and adjusted net revenue of $22.2 million. SG&A costs were $19.7 million in the fourth quarter and we recorded adjusted EBITDA of $2.4 million, net income of $0.1 million or $0.02 a share and adjusted net income of $0.33 a share versus a $1.02 a year ago. I’ll now turn the call over to Matt Diamond, our CFO, to review our financial results by region as well as some additional financial details from the fourth quarter.

Matt Diamond : Thank you, Jeff, and good morning everyone. Revenue and adjusted net revenue for our Americas business decreased 12% in constant currency. Adjusted EBITDA of $0.5 million decreased versus last year’s adjusted EBITDA of $2.7 million. Revenue for our Asia Pacific business decreased 7% year-over-year in constant currency, and adjusted net revenue grew 17% in constant currency. Adjusted EBITDA of $2.1 million decreased from adjusted EBITDA of $2.4 million a year ago. Our EMEA business grew revenue 14% and adjusted net revenue 33% in constant currency. Adjusted EBITDA of $0.5 million in the fourth quarter of 2022 increased slightly versus a year ago. Turning to some additional financial details from the fourth quarter, we ended Q4 with $27.5 million in cash and restricted cash.

Day sales outstanding was 50 days at December 2022, up from DSO of 43 days in December 2021. In connection with the acquisition of Coit Group in the fourth quarter of 2020, Karani in the fourth quarter of 2021 and Hunt & Badge in the third quarter of 2022, our balance sheet as of year-end reflects $4.9 million of goodwill and $4.5 million of net amortizable intangible assets. The company’s working capital, excluding cash, decreased to $7.3 million in the fourth quarter of 2022 from $7.8 million at the end of 2021. As a reminder, in April 2019 we finalized a credit facility in Australia to support the expected growth in working capital needs as a result of new client wins in that market, but we had nothing drawn on this facility at the end of Q4.

The company generated $4.4 million in cash flow from operations during the fourth quarter. I’ll now turn the call back over to Jeff to give some more perspective on our RPO business and to review current trends in our business.

Jeff Eberwein: Thank you, Matt. In the fourth quarter of 2022 we grew adjusted net revenue of 5%. A strong top line growth in the U.K. and Australia was partially offset by the slowdown in the tech sector and lower hiring volumes in China due to COVID-19 related lockdowns. Although adjusted EBITDA declined versus last year’s fourth quarter, we were able to reduce SG&A costs by more than $1 million versus Q3 and can make further adjustments to our cost structure if needed. We continue to win new business, and we have a very experienced team with a history of navigating different market cycles. We believe we are well positioned to respond quickly to the needs of our clients at various activity levels. Further, I’d like to emphasize that our enterprise RPO work, which now comprises approximately 80% of our business continues to hold up very well.

The remaining 20% of our business, which consists of work in the technology sector and project work is where we have seen a significant slowdown starting in the second half of last year. Our teams have responded accordingly to these market changes to protect our profitability and position the business to respond quickly should these conditions reverse. As always, I want to thank all of our highly dedicated employees for their flexibility, hard work and dedication to our clients and business in the challenging conditions we’ve been working through. Operator, can you please open the line for questions.

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Q&A Session

Operator: . Our first question comes from Marc Riddick with Sidoti & Company. Please go ahead.

Marc Riddick: Hi! Good morning.

Jeff Eberwein : Good morning.

Marc Riddick: So I was wondering if you could bring us up to data as to maybe what you’re seeing as far as the pricing environment, bill rates, pay rates, as well as I recall you were working on putting through some price increases. Maybe just sort of give an update as to maybe what you’re seeing there.

Jeff Eberwein : Sure. Yeah, the issue that we had in the second half of last year was all volume related. Pricing continues to be positive, and we are getting continued price increases. In general, our pricing follows wage rates and the labor market. So if wage rates, labor rates are going up, that’s a pretty good indicator, a leading indicator for our pricing trends.

Marc Riddick: Okay, and then I was wondering this to be €“ one of the things I did notice about the results was the tax rate seem to be kind of higher than maybe I was expecting. I was wondering if there was anything in particular there that we should be aware of.

Jeff Eberwein : Yes, that’s a really good question, Marc. Really it’s just a mix issue and it’s frustrating because we have such a large NOL, but that NOL is only for U.S. income, and as you know we’re very global and generate income around the world. So like in Q4 €“ Q3 and Q4 we had a decline in the U.S. which effectively has a 0% tax rate and international grew as a percentage of total, and if you if you look at our 10-K when it comes out, you’ll see that we pay taxes in places like Australia, UK, Hong Kong, China, and so that’s why the effective rate looks a little crazy. It’s really because of mix.

Marc Riddick: Okay, that makes sense. And then I was wondering if you could talk a little bit about, given the €“ you mentioned in your prepared remarks, some of the prior acquisition activities. I was wondering if it just sort of give us an update as to maybe what you’re seeing out there and what your thoughts maybe as to €“ well, if anything much has changed, whether it be at the pipeline or potential valuations or maybe geographic mix attracting us, anything like that.

Jeff Eberwein : Yeah, I would say, I would summarize it by saying we’re always looking, but we’re patient and waiting for some good opportunities to come along. There were actually quite a few acquisition possibilities that were on the market last year. A few of those did get acquired by other people who were just willing to pay a higher valuation than we were. But quite a few of them didn’t happen, didn’t get done and we’re always in the market, we’re always looking, we don’t have to do anything. We are really looking for those situations where (a) it’s a good valuation, immediately accretive, but (b) really adds something to our business that maybe we don’t have or is just easier to acquire than to build from scratch, whether it’s in a new sector or a new geographic region, that’s really what we’re looking for.

Marc Riddick: Great! And then I guess the last one for me. I know we’ve seen a lot of headlines around everything that’s taking place in the tech world. I think in some prior commentary that you’ve made, you were talking about how some of that kind of filtered from smaller companies to bigger companies I guess throughout the year, last year leading into this year. I was wondering if you could talk a little bit about maybe what you were seeing in some of the other verticals or are there any call outs that maybe we’re not seeing as much talked about, that would be worthy to know about. Thank you.